jnewbold,

There are some techniques for determining where your compression is being lost. One is to repeat the standard compression test, except you add some oil to the cylinder through the hole you are hooking up the pressure gage to, and then repeat the procedure. If the compression gets better, it is because the leak was past your rings and they got sealed by the oil, temporarily. If the results are the same, the leak is either in the head, like valves, or the head gasket. Then there is a pressure leak down test where you pressurize the cylinder with poor compression results, and then listen for where the leakage is, like at the intake or exhaust, or the crankcase. A stethescope or some other device that helps you pick up barely audible noises may be helpful. I have never done the leak down test myself, so I cannot vouch for how audible the leakage will be or how distinguishable the sources are.

In any case it sounds a lot like you need to take the head off, and make some decisions based on what you find at that point. You can have the head checked for cracks, valve leakage and so on, while the cylinder bores can be inspected for damage.

Good Luck, Jim

__________________
Own:
1986 Euro 190E 2.3-16 (291,000 miles),
1998 E300D TurboDiesel, 231,000 miles -purchased with 45,000,
1988 300E 5-speed 252,000 miles,
1983 240D 4-speed, purchased w/136,000, now with 222,000 miles.
2009 ML320CDI Bluetec, 89,000 miles

Owned:
1971 220D (250,000 miles plus, sold to father-in-law),
1975 240D (245,000 miles - died of body rot),
1991 350SD (176,560 miles, weakest Benz I have owned),
1999 C230 Sport (45,400 miles),
1982 240D (321,000 miles, put to sleep)